Tax-Efficient Strategies for Rewarding Employees

When it comes to employee benefits, companies need to consider tax-efficient strategies that can save money for both employers and employees.

There are various benefits in kind that can be provided to employees with no tax or National Insurance contributions. Some examples are as follows:

Tax-free benefits

Effective way to incentivise employees without incurring additional costs. 

• Mobile phones – provided that the contract is in the employer’s name. 
• Laptops and home-working allowances – A reimbursement for additional household expenses related to working from home, such as gas and electricity.
• Pension contributions – contributions paid into a registered pension scheme for the employee, by an employer. 
• Flu jabs/eye tests and health checks – If an employee uses a visual display unit; eye tests and glasses are not taxable if a test is required to use the monitor/screen, and if the glasses are specifically for monitor/screen work.  Expenses of providing employees with a maximum of one health screening assessment and one medical check-up a year. This exemption does not cover medical treatment, though employers may pay up to £500 towards medical treatment tax-free if the employee has been absent from work due to illness for at least 28 days and the treatment has been recommended to assist the employee’s return to work. 
• Tax-free loans – Employers can offer employees an interest-free loan of up to £10,000 per year. The conditions are that the total amount outstanding on all loans from an employer to an employee does exceed £10,000 at any time in the tax year.
• Free lunches – Free or subsidised meals, or a ticket/token to obtain such meals, if these are provided for all employees. 

Trivial benefitsEmployers can provide non-cash gifts to employees worth up to £50 per gift. These gifts must be genuine gifts and not a bonus for performance. They can be vouchers, such as an Amazon voucher or any other non-cash gift.

Company carsProviding company cars to employees can be an attractive benefit, but it can also be expensive. Employers should consider tax-efficient options when providing company cars, such as providing wholly electric cars, commercial vehicles like vans or pickups, or plug-in hybrid cars. Employers should also be aware of frequent tax changes and ensure they are up to date with business mileage claims, charging electric cars, and fuel benefits.

Bonuses and performance-based rewardsProviding bonuses or performance-based rewards is a common way to incentivize employees. However, employers should be aware of the tax implications of these rewards as bonuses are taxable.

Make sure you are taking advantage of all the benefits you can provide to employees tax-free!  This will give them more cash (ultimately) in their pockets, as well as saving employers national insurance costs. Feel free to contact us if you have any questions. 

At Oldfield, we offer an integrated legal, accounting, and tax advice approach to help shareholders plan and execute a successful exit strategy or business partner buy-out.  Please contact our team via info@oldfieldadvisory.com or call 024 7667 3160 for further assistance in this area.

Please note: This article is provided for information only and was correct as at time of writing (20/04/23). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.